Credit ratings agency Standard & Poor’s (S&P) has warned that China’s embattled financial sector must navigate an even tougher playing field this year.
Mounting concern over the pace of China’s economic slowdown, coupled with falling oil prices, have sparked a sell-off across global financial markets since the beginning of this year.
S&P said a slump in Chinese assets risks destabilising the world’s second largest economy and its financial sector, unless proper measures are in place to anchor investor confidence.
"The government's 'supply-side' reforms may affect the asset quality and profitability of overcapacity industries and the financial sector, which could dampen investor confidence in Chinese assets," it said in a report published today.
"Such a loss of confidence in the property market and corporate bond market would particularly exacerbate risks to the financial sector."
China’s supply-side reforms have been masterminded to help generate new growth engines, while tackling excess capacity, property inventories and poor-performing state-owned enterprises.
Economists have said they will help China avoid falling into the so-called middle income trap, which is when income and economic growth levels off before a country can ascend to high income status.